The American Citizens Abroad Global Foundation has launched its educational program with a forum/debate on the merits of Citizenship-based taxation vs. Residence-based taxation.
This is a full day event, sponsored and organized by the ACA (American Citizens Abroad), that will be held at the University of Toronto on May 2nd. Registration and Information
*********************
‘This is the first public debate — worldwide — devoted to this important topic.’
Donation of US$50 prepaid with the reservation or C$60 cash only at the door.
Student discount – C$10 cash at the door with valid student ID
The speakers will include academic tax specialists Bernard Schneider and Michael Kirsh, who have different approaches to the taxation of US citizens abroad, with the program moderated by Toronto lawyer John Richardson.
Dr. Stephen Kish, who co-authored with Mr. Richardson a submission to the U.S. Senate Finance Committee (see below), will be the academic host.
Bernard Schneider:
The End of Taxation Without End: A New Tax Regime for U.S. Expatriates, Virginia Tax Review, Vol. 32, No. 1, 2012, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2186076
Michael Kirsch:
Revisiting the Tax Treatment of Citizens Abroad: Reconciling Principle and Practice, October 23, 2013, Florida Tax Review, (Forthcoming), Notre Dame Legal Studies Paper No. 1457, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2346458
Richardson/Kish:
John Richardson, Willard Yates, Stephen Kish, Request for Tax Rules Changes for U.S. Citizens Overseas: Submission to the Senate Finance Committee, January 2014, http://citizenshipsolutions.ca/wp-content/uploads/2014/01/RichardsonYatesKishJan232014SFCSubmission.pdf
Keynote Speakers
Prof. Michael S. Kirsch, Professor of Law, Notre Dame Law School
Dr. Bernard Schneider, Teaching Fellow, Centre for Commercial Law Studies, Queen Mary University of London School of Law
Phil D.W. Hodgen, International Tax Attorney, Hodgen Law Group PC, Pasadena, CA
David Kuenzi, Certified Financial Planner,® Founder, Thun Financial Advisors, Madison, WI
Charles W. Cullen III, Certified Financial Planner, ® RBC Dominion Securities, Inc., Halifax, NS
Neil Sinclair, Chapter Chair, Amcham Canada – Ontario Region
Closing comments: Jackie Bugnion, American Citizens Abroad, Inc., Director of Tax Team
Originally published on April 23, 2014
@Anne Frank
Awesome post! You give new meaning to the pen being mightier than the sword. Or in modern terms, the keyboard is mightier than the drone strike.
In your last paragraph, I think you were referring to the Jackson – Vanik Amendment which put trade sanctions on the Soviet Union because they were using exit taxes as a means of restricting people (mainly Jews) from emigrating to America?
http://en.wikipedia.org/wiki/Jackson%E2%80%93Vanik_amendment
The Israelis should put sanctions on Chuck Schumer for restricting emigrants from America.
Can someone tweet an invitation to this event to the US Ambassador to Canada Heyman and ask him to RSVP?
https://twitter.com/BruceAHeyman
@Fromthewilderness: The Scoop Jackson law was used to deprive the Soviets of MFN status (affected things such as tariffs on imports and the like). The US, Canada and others unanimously refused to enforce Soviet era CBT as being contrary to public policy when the Soviet bloc would show up trying to claim a slice of the estates of their diaspora (nearly all of whom were refugees). The rest of the world, for whom CBT was and remains a foreign concept did so pretty consistently. The US, on the other hand, had and continues to have laws on its books to the same effect as the Soviets then and the Eritreans today (namely CBT). Apart from the knee-jerk “Soviets bad, Americans good” response, it would be hard to formulate a principled basis for the US to have refused outright to enforce such taxes if, as they claim for their own benefit, it is the Sovereign right of a country to tax its citizens abroad AND to dictate the basis on which they might lose that citizenship. The Soviets did exactly that and their laws were rejected as being contrary to American (and Canadian, European etc) public policy. If degrees of “freedom” are meant to have been the deciding factor, I think we could have a very interesting debate when the US claims the right to dispossess Canadian families of their homes and bank accounts for the crime of not having recognized their right to do so in the first place.
It would be interesting to see what pressure Jewish interests might place on Mr. Schumer as, proportionately, I would expect Israel would have more to lose than Canada does were the US anti-emigrant jihad be permitted its full expression. If some of his supporters knew that the IRS is opening offices in Israel and making Israel a particular “country of interest” in its quest to bring the world into compliance with US whims, they might blanche. While relatively few American Jews actually emigrate to Israel, I should think the community would be almost unanimous in defending the right of all to do so freely. Clinging US nationality, FBAR and all the rest are a pretty massive impediment to doing so if strictly enforced. Another quote I have often seen here is that the surest way to kill a bad law is to require it to be strictly enforced….
Correction – http://americansabroad.org/issues/taxation/history-of-us-taxes-abroad
If you study carefully the history of CBT in the US (thanks to Americansabroad.org for the data), you will discover that Cook v Tait was almost immediately overruled by Congress (2 years later – 1926). From 1926 until 1962, there was not CBT on non-US source income for anyone with a bona fide residence abroad (amendments over the years fine tuned the meaning of that term – how long one had to reside abroad, etc, but the concept of excluding non-residents remained in place). That blanket exemption was removed in 1962 and replaced with variants on the system in place today ($20,000 of excluded income, rising to $25,000 – in passing I would note that they have not exactly indexed that amount since $20,000 1962 dollars would be $156,000 today according to the BLS).
Long story short, the US has only been “exceptional” since about 1962 for all intents and purposes. Not sure that changes much in the debate, but I found it interesting.
I am wondering why Canada and other countries did not assert that FATCA abrogated WTO (and NAFTA).
A grant that the Privacy Commissioner awarded mentions an examination of “the interplay between FATCA AND NAFTA;
“…….The project will also examine the interplay of FATCA with other Canadian laws that protect taxpayer privacy such as the Income Tax Act, the Canada-United States Tax Convention Act and the North American Free Trade Agreement (NAFTA)…………” http://www.priv.gc.ca/resource/cp/2013-2014/cp_bg_e.asp We shall see what the result of that is. Or not. People can write to the Privacy Commissioner or email them and ask for a copy of the project results. I find it interesting that privacy and NAFTA was mentioned in the same research proposal but we have otherwise heard nothing about the NAFTA angle.
There is no ‘free trade’ when the US threatens economic sanctions against the financial AND many non-financial sector (even perhaps down to the level of family trusts) and activities of ALL other nations in the world. And, all the other nations are to pay with their own tax revenues for putting FATCA into place and maintaining it to whatever specifications the US Congress chooses to require – but the US favours its own institutions and will not/cannot force them to bear the exact same truly ‘reciprocal’ price and burden.
The US will shackle the rest of the world, and will not commit to the same. It is even doubtful what they will agree to with the OECD common reporting.
How is this not a trade offense?
@Anne Frank,
You mention the reticence of the world in preventing the transfer of domestic assets to the U.S. as a consequence of CBT. Similarly, I have not been successful in convincing the Government of Canada to complain to the U.S. when it passes legislation that contradicts the U.S.-Canada tax treaty.
What steps should Canada take in response to U.S.-imposed CBT?
@Anne Frank, The Revenue Act of 1926 did not overrule Cook v. Tait. It created the FEIE, which at the time was unlimited, but it only applied to “earned income” (salaries), just like today. “Unearned income”, such as the income in question in Cook v. Tait (rents), was never excluded.
The FEIE became limited to $20,000 in 1962, and the limit has varied since then. The US has surely been more exceptional in practice since 1962, but fundamentally exceptional all the way back to 1864.
@Isaac Brock; I think “Anne Franks” write up would make a fine above the fold headline post.
Just sayin.
FATCA fits into a general strategy that powerful countries, especially the U.S., use of negotiating biased bilateral deals. If other countries cooperated to oppose them such deals wouldn’t pass, but they don’t so it’s divide and conquer. There is a general problem in getting the U.S. to recognize international law at all or even consider the views of other countries. Sometimes this attitude gets it into trouble at the WTO, which can impose sanctions, but not at a level the U.S. (or many other wealthy countries) really notice. For its part, the WTO seems o.k. with the general principle of taxing all U.S. persons, as long as the U.S. doesn’t then create exemptions for U.S. corporations (since they are ‘U.S. persons’, too, in IRS speak). http://www.wto.org/english/res_e/booksp_e/discussion_papers9_e.pdf
@ShadowRaider – I guess I stand corrected. Your analysis sounds correct. Nonetheless – the evolution to a culture of “punish the emigrant” does seem to be of comparatively recent vintage if one excludes the exceptional (and thankfully temporary) period of the Civil War.
@StepheenKish – I think the matter is one worth discussion with someone like Alison. I expect the US Canada tax treaty is up for some regular review/revision cycle. I personally don’t think any steps need be taken now as the issue hasn’t ripened enough to get traction. Six months from now, we can expect that there will have been at least some level of grass roots lobbying on an MP and ministerial level.
Quite frankly, one hopes that some of the education of MP’s, Ministers and Senators is going to come from this crowd. There are more than 8 million views of this site at this point. Even if that is only 10,000 regular viewers, 10,000 emails, letter and calls of complaint from Canadian voters alarmed at being persecuted in this fashion will create some political receptiveness that does not exist (sufficiently) today. Each and every one of the folks who have hauled their reluctant behinds up the learning curve through this site should make it their personal business to convey their views by snail mail (bonus: no stamp required) or email to their MP, regional Senator, the Minister of Finance etc. Every single letter to these people is logged – the sentiments are genuine as is the concern. Expressing it to each other is nice, to people in power is KEY.
When the Finance bureaucrats begin to feel some pressure from Parliament to “do something” to make this issue go away, they will start to get more proactive in figuring out ways to help. A Charter Challenge that reads down the IGA (and very possibly, by extension, the tax treaty) to exclude Canadian residents from any perverse definition of US Resident for Tax Purposes or any similar device would provide excellent ammunition for Finance to begin to demand corresponding amendments to the tax treaty. Canada could demand that the US agree not to make FBAR (and similar) penalty demands from Canadian residents, insist that information exchange exclude FBAR – there are a million ways in which we could make it clear to the US that we will not tolerate their attempts to sweep Canadian source income frm Canadian tax residents into their fiscal net.
It would be VERY useful for discussion with bureaucrats if academics at our end were able to come close to assembling credible data of actual financial loss to Canada. I could easily argue that it is potentially in the billions:
– bankers have been estimating compliance costs in the hundreds of millions (even if much of that is “one time” with only tens of millions on-going, it is still material). Estimates on those figures x number of banks x tax cost of the deductibility of those expenses in Canada.
– some reasonable estimate on the number of “US Persons” who are non-compliant (my own review shows that 500,000 to 1 million US born Canadian residents, likely a number almost as large of children born to US parents in Canada – the 1 million figure does seem robust to me. Stats Can will have data on the average number of financial accounts each Canadian has – chequing, savings, RRSP, RESP : I expect 3-4 has got to be about average. That suggests something like 4 million unfiled FBAR’s is not out of the question. Estimate of potential penalties for a decade or more of non-compliance – essentially 100% of the balance after only two years is potential. There would have to be a way of coming up with an estimate, but I’d venture you would be in the billions of dollars very quickly.
– some estimate of current capital gains potential of US taxing sale of Canadian principal residences from US persons ought to be feasible
– assuming that US Person demographics and economics more or less tracks Canada, CRA tax data could help to build a likely profile of number of US Persons in Canada who might potentially be subject to double taxation due to US limitations on earned income exclusions and the deduction of Canadian taxes paid on Canadian source income (which, by the by, is a violation of the existing treaty that Canada has done nothing about). Stated differently, if one assumes that the richest 10% of expats are likely about as rich as the richest 10% of Canadians, you can make an educated guess as to how much tax the US might be attempting to pick their pockets for were they all to be coerced into becoming “compliant” That, of course, would be a direct cost to Canada since their money will be siphoned out of this country where it might otherwise have been invested to create jobs, etc.
– a similar exercise could help draw up a picture of what exit taxes the US would be trying to score if these same top 10% were forced into epatriation since they would all be “covered”.
Bottom line is I think – when the terrain has been prepared – an attempt to educate bureaucrats both as to the number of Canadian taxpayers adversely impacted by the US overreach AND credible estimates of the revenue the US could potentially siphon out of Canada if we actually helped them do it (as they are asking with the likes of FATCA), we might actually interest Canada in taking a firmer stand in negotiations to stop them at the border (at least as regards Canadian tax residents).
Calgary411 wrote yesterday
The interview is on line now http://www.cbc.ca/player/News/Canada/Calgary/Audio/ID/2451621355/
@Anne Frank or anyone else who would like to answer,
The topic of “horizontal equity” comes up here from time to time.
What is the POV of academics regarding the concept of horizontal equity being applied to expats who live in underdeveloped countries?
For example, I live in a country with 40% unemployment and electricity and water being available only 50% of the time, not to mention, roads, hospitals, schools, fire, police, courts etc in a complete mess.
How do academics justify subjecting people who live in third world countries with such poor infrastructure to the same tax regime as those living in the first world?
Sorry for the typo, I meant to write “like” to answer, not “lie” to answer (grin).
My arthritis is acting up again making my fingers miss the keys.
@ Anne Frank
Running the numbers on this is essential to reveal its impact.
Even if those numbers are approximate.
Wikipedia notes: “According to the Canada 2006 Census, 316,350 Canadians reported American as being their ethnicity, at least partially. There are also between 900,000 and 2 million Americans living in Canada, either as full-time and part-time residents.”
Because of Canada’s large population of so-called “U.S. persons”, almost all of who have banking and investment accounts, Canada is likely the world’s capital of “undeclared foreign accounts held offshore by U.S. persons”. Multiply the typical number of financial accounts by Canadians, and their friends and families, who are affected by FATCA. It could easily exceed 1,000,000.
In the participation and comments on this site, I believe we’re seeing only the tip of the iceberg This situation will expand explosively as hundreds of thousands of unaware Canadians now classified by the Omnibus Budget bill as “U.S. tax residents in Canada” have FATCA shoved down their throats by their long-term banking and financial service providers.
Alliances will be important. So will outreach to various communities, interest groups and congregations. These range from Native Canadians to residents of Quebec, from faith based communities to academic associations. The Jewish community. Women’s groups. Unions and labour locals. The gay and lesbian community. The Arts, Music and Entertainment community. Small businesses. Congregations. Students at both the high school and university level. Student unions and associations.
If everyone who is aware and concerned about this communicated urgently with several acquaintances… and they communicated with several more… think “chain reaction”.
Remember the “telephone tree” concept to get urgent messages in rural communities.
http://www.aauw.org/resource/how-to-build-a-phone-tree/
Posters are also a time-tested way to get the a message out. Maybe find some talented young creative artists – the ones who do posters for bands, skateboard events, raves. Give them some examples of WW II propaganda posters, and ask them to create a similar political posters about FATCA and its the new 2nd class of Canadians.
I wonder what the pro-CBT guys will recommend for bringing non-filers into compliance and stemming the flow of renunciations.
Perhaps congress can resurrect the Fugitive Slave Act and use it for extradition requests.
The pro-CBT guys I suspect will say the number of renunciants is not that significant.
I just listened to the CBC Radio Calgary article with the Moody’s tax lawyer, and I’d have to say I’m quite disappointed. He really does not adequately explain why people are jumping ship on their toxic citizenship, other than there are lots of forms to fill out or something light like that…….and that 95% of those he helps owe no taxes……like what was the point? He missed a great opportunity to really emphasize why the USA should be so reviled, which might even have the effect of gaining some more clients for himself.
We’ve got to do better than this to get the ire up in Canada…….although, one could argue that any publicity is good publicity.
@PierreD
U said it yourself… tax lawyer… he is going to make lots on these issues… rather then scare people… like some of the sharks are doing.. he is like… come on in… do the paperwork… no worries… here is my response… kiss my…
Attributed to Winston Churchill: “I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
I’ve tried with several emails, postings etc. to give this information to the Native Community here in Canada. It is very hard to explain this totally without major concern from these groups. I think without huge headlines, we are doomed. This message needs to get the attention of everyone. The explanation needs to be loud and clear to all Canadians. It is despicable what our enemy south of the border is trying to do to Canada I call them(US government) our enemy because if they were our friends, they would not even think of forcing this on us with a threat period. We need to get the word out in a big way. This site gets incredible traffic, most are silent readers. I understand people wanting to be anonymous, but we need help. We need action. Even if we can get the attention of 50% of the effected people, we can win. I run into people every day who have no idea what this “secret” US law and this “secret” Canadian IGA will do to innocent people. I can’t believe it got this far without bloodshed so far…..
@Joe Blow
To be honest, I don’t think that the policy towards normal people overseas, let alone developing countries has been well thought through. There is the assumption that the person living in a low-income country will be earning a reasonable amount for that country but not paying U.S. tax because of the foreign earned income credit Of course, things aren’t so simple, and people in developing countries can be badly affected by accounting costs and the less obvious rules such as foreign controlled corporation rules; PFIC rules particularly if the state pension plan has been privatized; self-employment rules; foreign trust rules and FBAR rules or penalties. There’s also the assumption that taxation is justified because Americans in developing countries might need the protection of the U.S. government at some point, even though the biggest group of U.S. born Americans in developing countries is probably Mexican dual nationals in Mexico, who would need to rely on Mexico in an emergency.
The subject of citizenship-based taxation hardly shows up in the general academic anti-offshoring/tax haven literature. One argument U.S. officials make in its favor of it is that it is fair in being the same around the globe, although it is clear that it is much easier for a non-resident to break the rules accidently. With CBT, there is also the advantage for the U.S. that billionaire Americans can’t make their fortune in the U.S. and then move it all to a tax haven, which happens in some countries. The literature (and the Congressional hearings) have focused exclusively on the High-Net Worth Individuals (HNWIs) who do seem prone to offshoring: it has been estimated that in 1998 1/3 of HNWI global wealth was held offshore.
There is also a lot of U.S. tax law that seems to be about politics rather than having any broader njustification. For example, I have yet to find a justification for why the estate tax threshold starts so incredibly low for non-resident non-U.S. spouses.
@badger
In terms of trade rules, I wonder whether the PFIC rules might violate WTO corporate subsidy rules. Originally Congress had intended to penalize all foreign passive investment but business said that this would harm its competitiveness, so the term PFIC was created specifically so that only individual portfolio investors would be hobbled while corporate passive investment could continue. I have seen allegations, but alas no proof, that the domestic mutual funds industry was also part of the stitch up. Deferred tax also doesn’t somehow seem to be a problem when corporations do it. The WTO and its predecessor GATT has pushed the US to change its global taxation policies before when it has favoured U.S. corporations over other types of U.S. persons. If U.S. corporations had to live with the same passive foreign investment rules as other U.S. persons do, things would soon change. Anyone have any thoughts on this? If this argument has merit, the right forum would be the EU with its battalions of trade lawyers rather than Canada.
To Polly … Thank you for that great quote! I think I’ll be giggling for the rest of the day …. thank you!!!
To everyone who has been commenting on this thread … I can’t wait to meet those of you who can make it to the May 2 debate. I stand in awe of the knowledge and research skills that have been demonstrated here.
NativeCanadian,
I absolutely agree with you: the balance between awareness and instilling fear is big. Thank you for your hard work in getting this into the Native Canadian community.
It bugs me so much and continues to amaze me that this is not a huge story — that the implementation of the FATCA IGA has been buried into the omnibus Bill C-31 and the precedent that implementation will set should concern every Canadian. At the very least, ALL Canadians should be aware of it having occurred! To me, that is why the Canadian Charter Challenge has to go ahead. It will be very costly — but more costly (I think) in not going ahead. Yes, we need everyone’s help — every one who is concerned about this country’s sovereignty.
I read this news story before it was removed online (not to have been released until April 27th). I so hope that it will get good distribution in the U.S. — as the real story here in Canada (and other countries we know of) is the collateral damage. Adam Geller, the Associated Press journalist framed the story very well, using again the often-heard story of my son and others like him, as well as other good illustrations of why so many people are renouncing their U.S. citizenship. He is certainly a “homelander” journalist that gets it.
As the Moodys tax lawyer interview on CBC Calgary said a few days ago, Moodys Gartner business regarding US citizenship-based taxation issues has doubled in the last year and it is anticipated they will be busier as will the Calgary Consulate with expatriations as July 1st approaches and, of course, then afterwards.
Hopefully the background work to make it possible to collect donations will soon be completed and we will have more media coverage with the Challenge going forward. Hopefully, hopefully. If not, my question will be why no one really cares.
Re: CBC interview.
I’ve attended a Moody’s promo session with Alex Marino & Roy Berg.
Their tunnel vision is to run people through the compliance mill (for their fee, of course.)
No sense that anything is amiss, or there might be injustice to address.
Add to my previous comment:
That’s what makes the CBC interview so disappointing.
The CBC message from Moody’s is: “Business is picking up, but it’s business as usual.”